THIS EMPLOYMENT AGREEMENT
(this “Agreement”) is effective as of
January 1, 2008, (the “Effective Date”), between Applied Digital
Solutions, Inc. (the “Employer”) and Mr. Joseph J. Grillo,
an individual (the “Employee”).

Agreement

In consideration of the
mutual premises, covenants and agreements set forth below, and intending to be
legally bound hereby, it is hereby agreed as follows:

1. Definitions. Capitalized terms
shall have the meanings defined in this Agreement or on Exhibits A and B
attached hereto unless the context otherwise requires. Exhibits A and B are
incorporated herein by this reference.

2. Employment Term and Duties.

2.1 Employment Term.
The Employer employs the Employee, and the Employee accepts employment by the
Employer, on the terms and conditions set forth in this Agreement and for the
period of time set forth in Exhibit B (the “Employment Period”), which
Employment Period shall be the term of this Agreement.

2.2 Duties.

(a) The Employee will
serve in the position set forth on Exhibit B. The Employee will devote
his/her full business time, attention, skill, and energy exclusively to the
business of the Employer, will use his/her best efforts to promote the success
of the Employer’s business.

(b) The Employee may
engage in the following activities during the Employment Period so long as such
activities do not interfere or conflict with Employee’s duties to Employer as
set forth in Section 2.2(a) above: (i) serve
on corporate, civic, religious, educational, and/or charitable boards or
committees; (ii) deliver lectures, fulfill speaking engagements, or teach
at educational institutions without receiving any compensation other than
reimbursement of expenses, nominal stipends, or similar forms of compensation;
and (iii) manage his/her personal investments, provided that such
investments do not conflict with the Employee’s duties and responsibilities
under this Agreement. It is specifically acknowledged that the Employee’s
continued service as a director of XCeedID
Corporation does not violate this Section 2.2(b). If the Employee is
appointed or elected an officer or director of the Employer or any Affiliate,
the Employee will fulfill his/her duties as such officer or director without
additional compensation. Upon termination of this Agreement for any reason, the
Employee automatically resigns as of such date as an officer and director of
the Employer and each Affiliate of which he/she is an officer or director, if
any.

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2.3 Location.
The Employee’s primary place of employment hereunder shall be as set forth in
Exhibit B.

3. Compensation and Benefits. The
compensation and benefits payable and provided to the Employee under this
Agreement shall constitute the full consideration to be paid to the Employee
for all services to be rendered by the Employee to the Employer and its
Affiliates in all capacities.

3.1 Base Salary.
During the first year of this Agreement, the Employee will be paid an annual
salary as set forth on Exhibit B (“Base Salary”), payable in periodic
installments according to the Employer’s customary payroll practices. In
subsequent years, Base Salary may be increased taking into account Employee’s
performance, company operating results, and industry practices.

3.2 Annual Bonus.
During the term of this Agreement, the Employee shall be eligible to
participate in an annual bonus plan. The bonus plan and any amounts payable thereunder may take into consideration personal performance
and contribution, operational and financial results, and other achievements
attributable to Employee’s accomplishments (“Bonus”). The bonus plan applicable
to Employee under this Agreement is as described in Exhibit B.

3.3 Business Expenses.
In accordance with the rules and policies that the Employer may establish from
time to time, the Employer shall reimburse the Employee for business expenses
reasonably incurred by him/her in the performance of his/her duties hereunder
in accordance with the Employer’s documentation guidelines as may be in effect
from time to time, provided that in no event will such reimbursement be made
later than the calendar year following the calendar year in which the expenses
are incurred.

3.4 Vacation.
The Employee shall be entitled to the vacation period per calendar year as set
forth on Exhibit B (prorated for less than a full year). Unused vacation
time not to exceed an aggregate of Two (2) weeks for all prior years may
be accumulated or carried over from year to year. The Employee shall not be entitled
to any compensation for unused vacation time except as provided in
Section 4.

3.5 Office and Support
Staff. During the Employment Period, the Employee shall be entitled to
an office, furnishings, other appointments, and secretarial or other assistants
as Employer shall determine are reasonably necessary to perform the Employee’s
duties and obligations as set forth herein and comparable to other similarly
situated employees of the Employer and its Affiliates.

3.6 Other.
Additional compensation and benefits to be paid by Employer to the Employee are
set forth on Exhibit B.

4. Termination.

4.1 Death; Disability.
This Agreement will terminate automatically upon the death or Disability of the
Employee.

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4.2 Termination Notice.
Any termination of the Employee’s employment other than a termination pursuant
to Section 4.1 hereof shall be by written notice to the other party,
indicating the specific termination provision in this Agreement relied upon, if
any, and setting forth in reasonable detail the facts and circumstances claimed
to provide a basis for the termination of the Employee’s employment under the
provision so indicated. The date of the Employee’s termination of employment
shall be specified in such notice; provided, however, that such date may not be
earlier than any applicable cure periods as set forth herein and, if a
termination is being effected by the Employee for any reason, such date shall
in any event not be less than one hundred and twenty (120) days from the
date the written notice is given to the Employer (the “Required Notice”),
during which period Employee shall continue to perform in accordance with this
Agreement unless such performance or notice period is waived by the Employer by
written notice to the Employee. Failure to provide the Required Notice or to
perform in accordance with in this Agreement during this period shall be deemed
a material breach of this Agreement by the Employee.

4.3 Termination Pay.
Upon termination of the Employee’s employment, the Employer will be obligated
to pay or provide the Employee or the Employee’s estate, as the case may be,
only such compensation and Benefits as are provided in this Section 4.3.

(a) Termination
by the Employer for Cause; Resignation of the Employee without Good Reason or
Required Notice. If (i) the Employer
terminates the Employee’s employment for Cause; (ii) the Employee
terminates his/her employment for any reason other than Good Reason; or
(iii) the Employee terminates his/her employment for any reason without
the Required Notice, then: the Employee shall be entitled to receive the Accrued
Obligations from the Employer, payable to Employee within thirty
(30) Business Days after the date of termination. Except
as specifically provided herein, the Employee shall not be entitled to any
other payments or Benefits pursuant to this Agreement.

(b) Termination
due to Disability or upon Death. If the Employee’s employment is
terminated due to Disability or upon the Employee’s death, the Employee or the
Employee’s estate, as the case may be, shall be entitled to receive from the
Employer the sum of the Accrued Obligations, payable to Employee or Employee’s
legal representative within thirty (30) Business Days after the date of
termination.

(c) Termination
by the Employee due to Good Reason or after a Change of Control or by the
Employer without Cause. If after the first annual anniversary of this
Agreement, the Employee’s employment is terminated by the Employer without
Cause or by the Employee for Good Reason or by the Employee within six months
immediately following a Change of Control, the Employee
shall be entitled to receive from the Employer the Termination Payment. If
during the first year of this Agreement, the Employee’s employment is
terminated by the Employer without Cause or by the Employee for Good Reason or
by the Employee within six months immediately following a Change of Control,
the Employer shall pay the Employee a severance equal to 6 months of base
salary.

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4.4 Payment.
Any termination or severance payment to Employee pursuant to Section 4.3
shall be payable by Employer in accordance with its usual payroll practices,
less standard deductions and withholdings, all as if Employee remained active
on Employer’s payroll, except for any amounts representing bonus payments
(which shall be payable over the same period), which payment shall be payable
to Employee in cash or stock at Employer’s discretion, subject to receipt of
the release and waiver required by Section 4.5 and to the provisions of
Section 4.6.

4.5 Release and Waiver.
Notwithstanding anything in Section 4.3 to the contrary, the Employee
shall not be entitled to any payment or Benefit pursuant to Section 4.3,
except for Accrued Obligations as required by law, unless the Employee has
delivered to the Employer a general release, signed and in a form reasonably
acceptable to the Employer, that releases the Employer and its Affiliates, and
all their respective officers, directors, employees, and agents from any and
all claims of any kind that the Employee may have arising out of the Employee’s
relationship with the Employer or any of its Affiliates or the termination of
employment, but excluding any claims arising under this Agreement, and such
release has become irrevocable by no later than the date which is 60 days
following the date of termination.

(a) 4.6 Six-Month
Waiting Period for Distributions Upon Separation From
Service. To the extent required by Section 409A of the Internal
Revenue Code of 1986 (as amended) (the “Code”), amounts that would otherwise be
payable under this Section 4 during the six-month period immediately
following the Employee’s termination, shall instead be paid on the first
business day after the expiration of such six-month period, plus interest
thereon, at a rate equal to the applicable Federal short-term rate (as defined
in Section 1274(d) of the Code) for the month in which such date of termination
occurs from the respective dates on which such amounts would otherwise have
been paid until the actual date of payment. In no event will any severance
payments be made hereunder, unless the relevant termination of employment
constitutes “separation from service” under Section 409A.

5. Non-Competition and Non-Interference.

5.1 Acknowledgements.
The Employee acknowledges that (a) the services to be performed by him/her
under this Agreement are of a special, unique, unusual, extraordinary, and
intellectual character and (b) the provisions of this Section 5 are
reasonable and necessary to protect the Confidential Information, goodwill, and
other business interests of the Employer and its Affiliates.

5.2 Covenants of the
Employee. The Employee covenants that he/she will not, directly or
indirectly, and except as specifically provided on Exhibit B of this
Agreement:

(a) during the
Non-Compete Period, without the express prior written consent of the Board of
Directors, as owner, officer, director, employee, stockholder, principal,
consultant, agent, lender, guarantor, cosigner, investor, or trustee of any
corporation, partnership, proprietorship, joint venture, association, or any
other entity of any nature, engage, directly or indirectly, in the Business in
any state in the United States or in any country in which the Employer or any
of its Affiliates is conducting Business activities or has conducted Business
activities in the twelve (12) months prior to termination, provided
however, that the Employee may purchase or otherwise acquire for passive
investment up to three percent (3%) of any class of securities of any such
enterprise under Section 12(g) of the Securities Exchange Act of 1934;

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(b) whether for the
Employee’s own account or for the account of any other person at any time
during his/her employment with the Employer or its Affiliates (except for the
account of the Employer and its Affiliates) and the Non-Compete Period, solicit
from any person or entity that is a customer of the Employer Business of the
same or similar type being carried on by the Employer or its Affiliates,
whether or not the Employee had personal contact with such person or entity
during the Employee’s employment with the Employer;

(c) whether for the
Employee’s own account or the account of any other person and at any time
during his/her employment with the Employer or its Affiliates and the
Non-Compete Period, (i) solicit, employ, or
otherwise engage as an employee, independent contractor, or otherwise, any
person who is an employee of the Employer or an Affiliate, or in any manner
induce, or attempt to induce, any employee of the Employer or its Affiliates to
terminate his/her employment with the Employer or its Affiliate; or
(ii) interfere with the Employer’s or its Affiliate’s relationship with
any person or entity that, at any time during the Employment Period, was an
employee, contractor, supplier, or customer of the Employer or its Affiliate,
provided however, that nothing herein shall prevent the Employee from offering
employment to, or employing or otherwise engaging, any person who responds to
an advertisement directed to the general public, or some segment thereof, and
not specifically to such person; or

(d) at any time after
the termination of his/her employment, disparage the Employer or its Affiliates
or any shareholders, directors, officers, employees, or agents of the Employer
or any of its Affiliates, so long as the Employer does not disparage the
Employee; provided, however, that notwithstanding the foregoing, paragraphs
(a) and (b) of this Section 5.2 shall not apply if the Employee’s
employment is terminated pursuant to Section 4.3(c) hereof. If any
covenant in this Section 5.2 is held to be unreasonable, arbitrary, or
against public policy, such covenant will be considered to be divisible with
respect to scope, time, and geographic area, and such lesser scope, time, or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against the Employee. The Employee
hereby agrees that this covenant is a material and substantial part of this
Agreement and that: (i) the geographic
limitations are reasonable; (ii) the term of the covenant is reasonable;
and (iii) the covenant is not made for the purpose of limiting competition
per se and is reasonably related to a protectable business interest of the
Employer. The period of time applicable to any covenant in this
Section 5.2 will be extended by the duration of any violation by the Employee
of such covenant.

6. Non-Disclosure Covenant

6.1 Acknowledgments by
the Employee. The Employee acknowledges that (a) the Employee will
be afforded access to Confidential Information; (b) public disclosure of
such Confidential Information would have an adverse effect on the Employer and
its Affiliates and its business; and (c) the provisions of this
Section 6 are reasonable and necessary to prevent the improper use or
disclosure of Confidential Information.

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6.2 Covenants of the
Employee. The Employee covenants as follows:

(a) Confidentiality.
During and after his/her employment with the Employer and its Affiliates, the
Employee will hold in confidence the Confidential Information and will not
disclose such Confidential Information to any person other than in connection
with the performance of his/her duties and obligations hereunder, except with the
specific prior written consent of the Board of Directors; provided, however,
that the parties agree that this Agreement does not prohibit the disclosure of
Confidential Information where applicable law requires in response to subpoenas
and/or orders of a governmental agency or court of competent jurisdiction. In
the event that the Employee is requested or becomes legally compelled under the
terms of a subpoena or order issued by a court of competent jurisdiction or by
a governmental body to disclose Confidential Information, the Employee agrees
that he/she will (i) immediately provide the
Employer with written notice of the existence, terms, and circumstances,
surrounding such request(s) so that the Employer may seek an appropriate
protective order or other appropriate remedy, (ii) cooperate with the
Employer in its efforts to decline, resist, or narrow such requests, and
(iii) if disclosure of such Confidential Information is required in the
opinion of counsel, exercise reasonable efforts to obtain an order or other
reliable assurance that confidential treatment will be accorded to such
disclosed information.

(b) Trade
Secrets. Any and all trade secrets of the Employer and its Affiliates
will be entitled to all the protections and benefits under the federal and
state trade secret and intellectual property laws and any other applicable law.
If any information that the Employer or any of its Affiliates deems to be a
trade secret is found by a court of competent jurisdiction not to be a trade
secret for purposes of this Agreement, such information will, nevertheless, be
considered Confidential Information for the purposes of this Agreement, so long
as it otherwise meets the definition of Confidential Information. The Employee
hereby waives any requirement that the Employer or any of its Affiliates submit
proof of the economic value of any trade secret or post a bond or other
security.

(c) Removal.
The Employee will not remove from the premises of the Employer or any of its
Affiliates (except to the extent such removal is for purposes of the
performance of the Employee’s duties at home or while traveling, or except
otherwise specifically authorized by the Employer or the applicable Affiliate)
any document, record, notebook, plan, model, component, device, or computer
software or code, whether embodied in a disk or in any other form belonging to
the Employer or any of its Affiliates or used in the business of the Employer
or of any of its Affiliates (collectively, the “Proprietary Items”). All of the
Proprietary Items, whether or not developed by the Employee, are the exclusive
property of the Employer or its applicable Affiliate. Upon termination of
his/her employment, or upon the request of the Employer during the Employment
Period, the Employee will return to the Employer all of the Proprietary Items
and Confidential Information in the Employee’s possession or subject to the
Employee’s control, and the Employee shall not retain any copies, abstracts,
sketches, or other physical embodiments in electronic form or otherwise, of any
such Proprietary Items or Confidential Information.

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(d) Development
of Intellectual Property. Any and all writings, inventions,
improvements, plans, designs, architectural work papers, drawings, processes,
procedures, and/or techniques (“Intellectual Property”) which the Employee (i) made, conceived, discovered, or developed, either
solely or jointly with any other person or persons, at any time when the
Employee was an employee of the Employer or any of its Affiliates whether
pursuant to this Agreement or otherwise, whether or not during working hours,
and whether or not at the request or upon the suggestion of the Employer or any
of its Affiliates, which relate to or were useful in connection with any
business now or hereafter carried on or contemplated by the Employer or any of
its Affiliates, including developments or expansions of its fields of
operations, or (ii) may make, conceive, discover, or develop, either
solely or jointly with any other person or persons, at any time when the
Employee is an employee of the Employer or its Affiliates, whether or not
during working hours and whether or not at the request or upon the suggestion
of the Employer or any of its Affiliates, which relate to or are useful in
connection with any business now or hereafter carried on or contemplated by the
Employer or any of its Affiliates, including developments or expansions of its
present fields of operations, shall be the sole and exclusive property of the
Employer and its Affiliates. The Employee shall make full disclosure to the
Employer of all such Intellectual Property and shall do everything necessary or
desirable to vest the absolute title thereto in the Employer. The Employee
shall write and prepare all specifications and procedures regarding such
Intellectual Property and otherwise aid and assist the Employer so that the
Employer can prepare and present applications for copyright, patent, or
trademark protection therefor and can secure such
copyright, patent, or trademark wherever possible, as well as reissues,
renewals, and extensions thereof, and can obtain the record title to such
copyrights, patents, or trademarks so that the Employer or its designated
Affiliate shall be the sole and absolute owner thereof in all countries in
which it may desire to have copyright, patent, or trademark protection. The
Employee shall not be entitled to any additional or special compensation or
reimbursement regarding any and all such Intellectual Property.

7. General Provisions of Sections 5
and 6.

7.1 Injunctive Relief
and Additional Remedy. The Employee acknowledges that the injury that
would be suffered by the Employer and its Affiliates as a result of a breach of
the provisions of Sections 5 and 6 of this Agreement would be irreparable
and that an award of monetary damages to the Employer for such a breach may be
an inadequate remedy. Consequently, the Employer will have the right, in
addition to all other rights, to seek injunctive relief to restrain any breach
or threatened breach or otherwise to specifically enforce any provision of this
Agreement. The Employee waives any requirement that the Employer secures or
posts any bond in conjunction with any such remedies. The Employee further
agrees to and hereby does submit to in personam
jurisdiction before each and every court for that purpose. Without limiting the
rights of the Employer or of any of its Affiliates under this Section 7 or
any other remedies available to the Employer or its Affiliates, if the Employee
breaches any other provisions of Sections 5 and 6 and such breach is proven
in a court of competent jurisdiction, the Employer will have the right to cease
making any payments or providing Benefits otherwise due to the Employee under
this Agreement.

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7.2 Covenants of
Sections 5 and 6 are Essential and Independent Covenants. The
covenants of the Employee in Sections 5 and 6 hereof are essential
elements of this Agreement, and without the Employee’s agreement to comply with
such covenants, the Employer would not have entered into this Agreement or
continued the employment of the Employee. The Employer and the Employee have
independently consulted their respective counsel and have been advised in all
respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by the Employer and its
Affiliates. In addition, the Employee’s covenants in Sections 5 and 6 are
independent covenants and the existence of any claim by the Employee against
the Employer under this Agreement or otherwise will not excuse the Employee’s
breach of any covenant in Sections 5 or 6. Notwithstanding anything in the
Agreement to the contrary, the covenants and agreements of the Employee in
Sections 5 and 6 shall survive the termination of the Agreement, except as
provided below.

8. General Provisions.

8.1 Indemnification.
The Employer shall indemnify and hold harmless the Employee to the fullest
extent permitted by applicable law against all costs (including reasonable
attorneys’ fees and costs), judgments, penalties, fines, amounts paid in
settlements, interest, and all other liabilities incurred or paid by the
Employee in connection with the investigation, defense, prosecution,
settlement, or appeal of any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative and to
which the Employee was or is a party or is threatened to be made a party by
reason of the fact that the Employee is or was an officer, employee, director
or agent of the Employer or its Affiliates, including any property owner or
condominium association that the Employee has been asked to serve on by the
Employer, or by reason of anything done or not done by the Employee in any such
capacity or capacities, provided that the Employee acted in good faith and in a
manner the Employee reasonably believed to be in or not opposed to the best
interests of the Employer or any of its Affiliates, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his/her
conduct was unlawful. The Employer also shall pay any and all expenses
(including reasonable attorney’s fees) incurred by the Employee as a result of
the Employee being called as a witness in connection with any matter involving
the Employer and/or any of its officers or directors. Nothing herein shall
limit or reduce any rights of indemnification to which the Employee might be
entitled under the organizational documents of the Employer or as allowed by
applicable law.

8.2 Waiver.
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by either party in exercising
any right or privilege under this Agreement will operate as a waiver of such
right or privilege, and no single or partial exercise of any such right or
privilege will preclude any other or further exercise of any right or
privilege. To the maximum extent permitted by applicable law, any claim or
right arising out of this Agreement may only be discharged by a waiver or
renunciation of the claim or right in writing signed by the other party.

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8.3 Successors.

(a) This Agreement is
personal to the Employee and shall not be assignable by the Employee, other
than economic rights that may be assigned by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Employee’s legal representatives.

(b) This Agreement
shall inure to the benefit of and be binding upon the Employer and its
successors and assigns. Any successor (whether direct or indirect, by purchase,
merger, consolidation, or otherwise) to all or substantially all of the
business and/or assets of the Employer shall perform this Agreement in the same
manner and to the same extent that the Employer would be required to perform it
if no such succession had taken place. The Employer agrees to fully disclose
this Agreement and its binding effect to any successor or potential successor
and will require any successor to expressly acknowledge its assumption of this
Agreement and such successor’s obligation to perform this Agreement in the same
manner and to the same extent that the Employer would be required to perform it
if no such succession had taken place.

(c) As used in this
Agreement, “Employer” shall mean the Employer as defined above and any
successor to its business and/or assets by operation of law or otherwise.

8.4 Notices.
All notices, consents, waivers and other communication required under this
Agreement must be in writing and will be deemed to have been duly given when
(a) delivered by hand (with written confirmation of receipt),
(b) sent by facsimile (with written confirmation of delivery), provided
that a copy is mailed by certified mail, return receipt requested, the same day
or the next Business Day, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service, in each case to the
appropriate addresses and facsimile numbers set forth below (or to such other
addresses and facsimile numbers as a party may designate by notice to the other
parties):

8.5 Entire Agreement; Supersedure. This Agreement, together with the
Exhibits attached hereto, contains the entire agreement between the parties
with respect to the subject matter hereof, and expressly terminates, rescinds,
replaces, and supersedes all prior and contemporaneous agreements and
understandings, oral or written, between the parties with respect to the
subject matter hereof.

8.6 Governing Law;
Submission to Jurisdiction; Mediation.

(a) THIS AGREEMENT
WILL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE FEDERAL COURT IN WILMINGTON, DELAWARE, FOR THE PURPOSES OF
ANY PROCEEDINGS ARISING OUT OF THIS AGREEMENT, AND HEREBY WAIVES ALL RIGHTS TO
TRIAL BY JURY AND AGREES THAT ANY PROCEEDING SHALL INSTEAD BE DECIDED BY A
JUDGE SITTING WITHOUT A JURY.

(b) Prior to
commencement of any legal proceeding or at any time after commencement of any
legal proceeding, Employee agrees that, upon request of Employer, and at the
expense of the Employer, any dispute between Employee and Employer shall be
presented for non-binding mediation by a third party mediator. In the event
that Employee fails to comply with his/her obligation to participate in
mediation as required herein, such failure shall constitute a breach of this
Agreement by Employee entitling Employer to damages.

8.7 Severability.
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect, unless the absence of such invalid or
unenforceable provision materially alters the rights or obligations of either
party hereto. Any provision of this Agreement held invalid or unenforceable
only in part or degree will remain in full force and effect to the extent not
held invalid or unenforceable, unless the absence of such invalid or
unenforceable portion of such provision materially alters the rights or
obligations of either party hereto.

8.8 Tax Withholding
and Reporting. The Employer shall withhold from all payments hereunder
all applicable taxes that it is required to withhold with respect to payments
and Benefits provided under this Agreement and shall report all such payments
and withholdings to the appropriate taxing authorities as required by
applicable law.

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8.9 Amendments and
Waivers. This Agreement may not be modified, waived, or discharged
unless such waiver, modification, or discharge is agreed to in writing and
signed by the Employee and subject to authorization of the Board of Directors.
Any waiver by either party hereto shall be specific to the event and shall not
be deemed a waiver of any other event.

8.10 Survival.
The provision of provisions of Sections 4, 5, 6, 7, and 8 shall survive
the termination of this Agreement.

8.11 Counterparts.
This Agreement may be executed in any number of counterparts, by original or
facsimile signatures, each of which shall constitute an original and all of
which taken together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the
parties have executed and delivered this Agreement effective for all purposes
as of the Effective Date.

Lorraine M. Breece

Joseph J. Grillo

/s/ Lorraine M. Breece

/s/ Joseph J. Grillo

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Exhibit A

Definitions

“Accrued Obligations” means, at the relevant
date, the sum of the following: (i) the Employee’s
earned or accrued, but unpaid, Base Salary through the date of termination of
the Employee’s employment; (ii) any Bonus earned or accrued and vested,
but unpaid; (iii) the economic value of any of the Employee’s accrued, but
unused, vacation time; and (iv) any unreimbursed business expenses
incurred by the Employee.

“Affiliate” means a person or entity who or
which, (i) with respect to an entity, directly
or indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with, such entity; or (ii) with respect to the
Employee, is a parent, spouse, or issue of the Employee, including persons in
an adopted or step relationship.

“Business” means the business in which Applied
Digital Solutions, Inc. or any of its subsidiaries is engaged in at any time
during the term of this Agreement.

“Business Day” shall mean any day other than a
Saturday, Sunday or bank holiday recognized in St. Paul, Minnesota.

“Cause” means:

(a) an act of fraud,
misappropriation, or personal dishonesty taken by the Employee at the expense
of the Employer or an Affiliate, including, but not limited to, the willful
engaging by the Employee in illegal conduct or gross misconduct, which act in
any such case is or reasonably could be injurious to the Employer;

(b) the material
violation by the Employee of a material obligation of the Employee under this
Agreement, including but not limited to, the willful or continued failure of
the Employee to perform substantially the Employee’s duties with the Employer
or its Affiliates (other than such failure resulting from Disability) which
violation or failure is not remedied within ten (10) Business Days after
receipt of written notice or demand for substantial performance or corrective
action is delivered to the Employee by the Board of Directors which identifies
the manner in which the Board of Directors believes that the Employee has not
substantially performed the Employee’s duties or has violated an obligation
under this Agreement;

(c) the
conviction, or plea of nolocontendere,
of the Employee for any felony or any misdemeanor involving moral turpitude;

(d) a material
violation of any express direction of the Board of Directors or a material
violation of any rule, regulation, policy or plan established or approved by
the Board of Directors from time to time regarding the conduct of the
Employer’s employees and/or its business which, in any such case, is or
reasonably could be injurious to the Employer; or

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(e) failure
of the Employee to provide the Required Notice to Employer and to substantially
comply with all requirements of Section 4.2 of this Agreement.

1.1.

“Change of
Control” means any bona
fide, third-party change of control as follows:

(a)

any person or
entity (or persons or entities acting as a group) other than one of its
Affiliates acquires stock of Employer that, together with stock then held by
such person, entity or group, results in such person, entity or group holding
more than fifty percent (50%) of the total combined voting power of all
classes of the then issued and outstanding securities of the Employer; or

(b)

the
sale of all or substantially all of the properties and assets of the Employer
to any person or entity which is not a subsidiary, parent or Affiliate of the
Employer.

Notwithstanding the foregoing, the merger between
Applied Digital Solutions Inc. and Digital Angel Corporation is specifically
excluded from the definition of Change of Control, and the closing of the
merger will not trigger any Change of Control rights.

“Confidential Information” means any and all
intellectual property of the Employer (or any of its Affiliates), including but
not limited to:

(a) trade secrets
concerning the business and affairs of the Employer (or any of its Affiliates),
product specifications, data, know-how, formulae, compositions, processes,
designs, sketches, photographs, graphs, drawings, samples, inventions and
ideas, past, current and planned research development, current and planned
manufacturing or distribution methods and processes, customer lists, current
and anticipated customer requirements, price lists, market studies, business
plans, computer software and programs (including object code and source code),
computer software and database technologies, systems, structures, and
architectures (and related formulae, compositions, processes, improvements,
devices, know-how, inventions, discoveries, concepts, ideas, designs, methods
and information), and any other information, however documented, that is a
trade secret under federal, state or other applicable law; and

(b) information
concerning the business and affairs of the Employer (or any of its Affiliates)
(which includes historical financial statements, financial projections and
budgets, historical and projected sales, capital spending budgets and plans,
the names and backgrounds of key personnel, personnel training and techniques
and materials), however documented; and notes, analysis, compilations, studies,
summaries, and other material prepared by or for the Employer (or any of its
Affiliates) containing or based, in whole or in part, on any information
included in the foregoing.

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Notwithstanding the foregoing, Confidential
Information shall not include information otherwise lawfully known generally by
or readily accessible to the trade or general public other than by the improper
disclosure, directly or indirectly, by the Employee or an Affiliate of the
Employee.

“Disability” means the inability of the
Employee, due to the injury, illness, disease, or bodily or mental infirmity,
to engage in the performance of substantially all of the usual duties of
employment with the Employer as contemplated by Section 2.2 herein, such
Disability to be determined by the Board of Directors upon receipt and in
reliance on competent medical advice from one or more individuals, selected by
the Board of Directors, who are qualified to give such professional medical
advice. The Employee must submit to a reasonable number of examinations by the
medical doctor making the determination of Disability, and the Employee hereby
authorizes the disclosure and release to the Employer of such determination and
all supporting medical records. If the Employee is not legally competent, the
Employee’s legal guardian or duly authorized attorney-in-fact will act in the
Employee’s stead for the purposes of submitting the Employee to the
examinations, and providing the authorization of disclosure required hereunder.

It is expressly understood that the Disability of the
Employee for a period of one hundred twenty (120) calendar days or less in
the aggregate during any period of twelve (12) consecutive months, in the
absence of any reasonable expectation that his/her Disability will exist for
more than such a period of time, shall not constitute a failure by him/her to
perform his/her duties hereunder and shall not be deemed a breach or default
and the Employee shall receive full compensation for any such period of
Disability or for any other temporary illness or incapacity during the term of
this Agreement.

“Employment Period” means the term of the
Employee’s employment under this Agreement.

“Fiscal Year” means the fiscal year of
Employer.

“Good Reason” means:

(a) that
without the Employee’s prior written consent and in the absence of Cause, one
or more of the following events occurs:

(i) any
material and adverse change in the Employee’s authority, duties, or
responsibilities as set forth in Section 2, including loss of the position
and/or titles of President and Chief Executive Officer of the Employer or no
longer reporting directly to the Board of Directors;

(ii) failure by the Employer to comply with and satisfy
Section 8.3(b) of this Agreement; or

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(iii) the material
violation by the Employer of a material obligation of the Employer under this Agreement,
which violation or failure is not remedied within ten (10) Business Days
(or such additional reasonable period of time if additional time is necessary
to remedy) after receipt of written notice or demand for substantial
performance or corrective action is delivered to the Employer by the Employee,
delivered as required by this Agreement, which specifically identifies the
manner in which Employee believes that the Employer has not substantially
performed the Employer’s duties or violated an obligation under this Agreement;
and

(b) within sixty
(60) Business Days of learning of the occurrence of any such event, and in
the absence of any circumstances that constitutes Cause, the Employee
terminates employment with the Employer by written notice to the Employer in
the manner required by this Agreement; the date of termination set forth in
such notice shall not be less than thirty (30) days from the date notice
is given to Employer as required by Section 4.2 of this Agreement.

“Non-Compete Period” means the period beginning
on the Effective Date and ending as set forth in Exhibit B.

“Termination Payment” shall mean a severance
payment equal to the sum of one and one-half times (1.5 X) the Base Salary at
the time of the termination plus one and one-half (1.5 X) times ‘Target Bonus’
(as defined in Exhibit B) at the time of the termination.

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Exhibit B

Employment Agreement
Terms

1.

Employment
Period. The Employment
Period referenced in Section 2.1 of the Agreement shall not be for a
fixed period of time and can be terminated in accordance with the provisions
of Section 4.

2.

Position. The Employee will serve as President
and CEO of Applied Digital Solutions, Inc. and will report to the Board of
Directors of Applied Digital Solutions, Inc. or its successors. In this
capacity, Employee will have such duties and responsibilities as are
reasonably consistent with such position.

3.

Location. The Employee’s primary place of
employment hereunder shall be at the office of South St. Paul, Minnesota and
Employer acknowledges that Employee will also work from time to time from his
home office in Connecticut. Employee shall travel to St. Paul, Minnesota, as
well as other locations, as necessary to perform his/her obligations and
duties to the Employer. All Employee’s expenses of
travel between his home and St. Paul, Minnesota shall be borne by the
Employer.

4.

Base Salary. Employee will be paid an annual salary
of three hundred and seventy-five thousand dollars ($375,000), which Base
Salary will be reviewed annually during the Employment Period as set forth in
Section 3.1 of the Agreement.

5.

Annual Bonus. Employee is eligible to receive an
annual bonus, subject to approval of the Board of Directors or relevant Board
Committee, ranging from 0% to 200% of earned base salary based on performance
metrics and goals set forth below and as may be further determined by the
Board of Directors. The Employee is considered to have a ‘Target Bonus’ of
100% of base salary for the purposes of calculating ‘Termination Pay’,
severance, total cash compensation, etc.

6.

Annual Bonus
Metrics. Employee’s
bonus will determined upon performance in the following areas with related
metrics and goals to be approved by the Board of Directors at the beginning
of each performance year:

a.

Company and
Divisional Revenues

b.

Net Income

c.

Cash Generation

d.

Board
Discretion

e.

Investment
Analyst Coverage

f.

Price Per Share

g.

Strategic
Deals/Partnerships that enhance shareholder value

h.

Such other
metrics and goals as may be established by the Board of Directors

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In determining the total
bonus to be earned, the weight given to the above metrics and goals shall be
50% to (a) through (c), and 50% to (d) through (h).

7.

Equity
Grant. Employee will
participate in the Digital Angel Stock Option Plan and will receive, upon
unanimous written consent by the Board of Directors, the issuance of a stock
option grant, valid for 10 years, to purchase 550,000 shares of Applied
Digital Solutions, Inc. Stock with a strike price equal to the market value
of the stock as of the close of the date such option grant is approved by the
Board. This resolution will be presented to the Board upon the execution of
this agreement. The option will vest ratably over the next five years. Other
terms of such option are set forth in the plan.

The Board of Directors will
review Employee’s performance on at least an annual basis and based upon such
review will consider making the Employee additional stock option grants, which,
if granted, will have a strike price equal to the market value of the stock as
of the close of the date such option is approved by the Board. The Board of
Directors may conduct an interim performance review in the third or fourth
quarter of 2008 and, in connection therewith, shall have the discretion, but
not the obligation, to consider additional stock option grants to Employee. In
the event that stock options may not be available or advisable for issuance as
contemplated by this provision, Employer may grant instead restricted stock,
stock appreciation rights, or other forms of equity incentive compensation as
agreed to by the Employee and Company and having the economically equivalent
value to the grant of options as contemplated herein.

All options held by
Employee shall become fully vested and exercisable upon any termination of
employment described in Sections 4.3(b) and (c) of the Agreement
which occurs at least six months after the Effective Date, and shall remain
exercisable for a period of three years following any such termination (subject
to earlier expiration of the original option term). All options will become
vested and exercisable upon a Change of Control. Upon any termination of
employment described in Section 4.3(a) of the Agreement, and upon any
termination of employment within six months following the Effective Date, all
unvested options shall terminate and all vested options shall remain
exercisable for a period of 90 days and thereafter terminate.

8.

Non-Compete
Exclusion. The
non-competition provisions of this Agreement, Section 5.2, shall include
Employee’s activities in all areas, technologies, product lines and market
segments in which the Employer is involved at the time this agreement is
terminated.

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a.

Non-Compete
Period. The
non-competition provisions of this Agreement, Section 5.2, shall specifically
prohibit Employee’s activities from the Effective Date through that date
eighteen (18) months from the date this agreement is terminated.

9.

Vacation. Employee shall be entitled to four
(4) weeks of vacation per calendar year in accordance with
Section 3.5 of the Agreement.

10.

Notices. Any notices to be given to Employee as
set forth in Section 8.4 of the Agreement shall be to the address and
facsimile number set forth in Section 8.4 of the Agreement.